How to choose well when investing in property
Property investment is not a complex matter. It involves several simple steps and clear principles that continue to deliver steady returns over time.
Buying a good investment property is built on the same principles you use to buy a home to live in — with one small but important difference.
Investors must make any decision with a strictly business mindset, removing all emotion from the equation and focusing only on the bottom line.
Key investment tenets explained
In its simplest form, the key to successful property investment is a steady rental income and strong capital growth.
Investing in an affordable, attractive and well-located property is designed to look after you and your finances for the long term.
Tenants/renters are increasingly looking to buy a lifestyle, so it makes sense that the property should be close to all amenities (public transport, shops, restaurants, parklands and schools).
There’s also depreciation to be factored into any decision with new dwellings or off-the-plan developments, while reduced stamp duty can also be pivotal in any decision to buy.
Perhaps the key relates to your primary goal of property investment, which is why it is vital to establish a clear strategy with your financial advisor.
What do you aim to gain?
Some people want an investment property that provides sufficiently high rental returns to be self-servicing. This requires little or no ongoing payments from the investor.
Others chase capital growth, which cashes in on the benefits of negative gearing to reduce your tax burden.
Negative gearing occurs when the rental returns do not cover the interest on the money you borrowed or the day-to-day expenses involved in retaining the property.
The loss can be used as a tax deduction, and vary according to which tax bracket you are in.
The easiest way to increase your expenses is to borrow more when you buy (i.e. borrow 70 per cent, rather than 60 per cent).
But always be prepared for the potentially adverse effect of interest rate rises or a prolonged period without a renter/tenant.
Methodical approach works best
Figuring out which method suits you best will be central to your investment strategy. The approach you choose to employ will dictate what kind of property you buy and where you look for it.
Property should be treated the same as any other investment — the higher the return, the higher the risk.
Rest assured, with insightful research, thoughtful planning and attention to detail in each step of the buying process, risk and stress will be minimised.
This may entail seeking advice from industry professionals, but it’s a small price to pay for peace of mind.
An investment property should be treated like a fine wine — if you nurture it and allow it time to mature, the rewards will multiply.
By following these simple rules, the chances are that you will reap the benefits of investing wisely.
Consult your home lender, financial advisor or bank for further investment advice.